DSCR Loans For The WIN! (Sell MORE Homes This Winter To Investors)

DSCR Loans For The WIN! (Sell MORE Homes This Winter To Investors)

Introduction to DSCR Loans

Hey kids, today we’re talking about something called DSCR loans. It sounds complicated, but don’t worry, it’s not too bad. DSCR stands for Debt Service Coverage Ratio. With these loans, the bank looks at how much money the property makes instead of how much money the person buying it makes. Cool, right? So, let’s break it down!

Understanding DSCR Loans

What is DSCR?

DSCR is a way for banks to decide if a property can pay for itself. They check if the rent money from the property can cover the loan payments. If it can, then the property passes the test!

Borrower Requirements

Even though the property’s income is important, the person buying the property also needs to have good credit. Here’s a quick look at what’s needed:

  • Credit score above 700: Lots of options
  • Credit score between 660-700: Still many options
  • Credit score below 660: Fewer options, but it’s still possible

They also need some money saved up because they’ll usually need to pay 15% to 25% of the property’s price upfront.

Example of DSCR Loan Use

Let’s say someone owns a property they don’t live in, like a house they rent out. If they have a lot of equity (that means they owe less than the property is worth), they can use that to get the money they need to buy another property. This can happen very quickly, sometimes in just a few days!

HELOC Program

Next week, they’ll talk about something called a HELOC. It’s another way to get money from a property, and the application is super quick, like five minutes! You can even use it for properties you don’t live in.

How DSCR is Calculated

Understanding the Ratio

The main ratio banks look for is 1:1. This means the rent money from the property should be equal to or more than the loan payments. Some banks are more flexible and might accept a lower ratio, but generally, 1:1 is the goal.

Benefits of a Good Ratio

The better the ratio, the better the loan terms can be. This means you might get a lower interest rate or pay fewer fees. It’s like getting a gold star for having a really good property!

The Appraisal Process

Appraisal Form 107

To determine the property’s value, an appraiser fills out a special form called a 107. It’s not a full appraisal, just a form that helps decide if the property makes enough money to cover the loan.

Rural Properties

Properties in rural areas (places with fewer than 50,000 people) can be tricky. Some banks don’t like to lend money for rural properties, so it’s important to know if your property is considered rural.

Three Key Factors in DSCR Loans

Income, Credit, and Assets

Three main things matter for DSCR loans: the income the property makes, the borrower’s credit score, and the assets (money or other properties) the borrower has. If all three are good, getting a DSCR loan is much easier.

Creative Financing Strategies

Using HELOC to Unlock Assets

If someone doesn’t have enough money saved, they can use a HELOC to get the funds they need. This is a quick way to turn the equity in a property into cash for a new investment.

The BRRRR Method

There’s a cool strategy called BRRRR: Buy, Rehab, Rent, Refinance, Repeat. Investors buy a property, fix it up, rent it out, refinance to pull their money back out, and then do it all over again. This helps them grow their portfolio quickly!

Finding Investment Opportunities

Proactive Property Search

Real estate agents can look for properties that might be good investments and present them to potential buyers. They can use tools like Zillow to estimate rental prices and see if the property’s income will cover the loan.

Marketing to Investors

Agents can use text scripts and other marketing tools to reach out to potential investors and show them great opportunities. This helps them sell more properties and build relationships with investors.

Additional Considerations

Interest Rates and Fees

DSCR loans usually have interest rates that are a little higher than traditional loans, but they can still be very competitive. Points and fees can also be similar to regular loans.

Prepayment Penalties

Some states allow prepayment penalties (extra fees if you pay off the loan early), while others do not. It’s important to know the rules in your state and choose the best option for your situation.

Fixer-Upper Properties

There are also loans for buying properties that need fixing up. These loans might cover the cost of repairs and can be a great way to get a property ready for renting or selling.

Conclusion

DSCR loans are a great way for investors to buy properties based on the income those properties will make. By understanding the requirements and using creative strategies, investors can grow their portfolios quickly. Real estate agents can also benefit by helping investors find and finance these properties.

Call to Action

If you have any questions or want to learn more about DSCR loans and how they can help you buy more properties, reach out to us today! We’re here to help you succeed in your real estate journey.







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